Manufacturing growth continues to climb upward, according to an Institute for Supply Management report released today.

After June's index reading rose 1.9 percentage points to reach 50.9%, this report brings another month of increasing gains at 55.4%, the highest reading in two years. Based on surveys of purchasing managers, a reading above 50% indicates that the manufacturing economy is generally expanding, while below 50% indicates that it is generally contracting.

Although analysts had expected another solid rise, their 51.3% prediction proved below the mark. July's reading of 55.4% reflects the sixth month of growth, and the highest overall PMI reading, in the first seven months of 2013.

Source: Author, data from ISM. 

On a component-by-component basis, production made a massive 11.6-point gain to hit 65%, the highest reading since May 2004. Employment also picked up another 5.7 points to 54.4%, marking a return to expansion in employment, following only two months of contraction in the past 47 months. New orders headed 6.4 points higher to 58.3% as a potentially positive sign for future sales. This is the highest reading for the index since April 2011.

Inventories, customers' inventories, prices, and order backlogs all fell below the 50% mark, with prices and inventories taking a 3.5-point dip. Exports also fell one point to 53.5%, although imports picked up 1.5 points to 57.5%.

Of the 18 manufacturing industries interviewed for the index, only four (plastics & rubber products, apparel, leather & applied products, machinery, and miscellaneous) reported contraction. Furniture made the largest gains in July, followed by textile mills and printing & related support activities.